BlackRock Institutional Funds Switzerland

Transcription

1 BlackRock Institutional Funds Switzerland A contractual Umbrella Fund under Swiss Law of the Type Other Funds for Traditional Investments for Qualified Investors Fund Contract with Annex 16 February 2016 An investment fund established by BlackRock Asset Management Schweiz AG, Zurich and State Street Bank GmbH, Munich, Zurich Branch. Fund management company BlackRock Asset Management Schweiz AG Bahnhofstrasse 39, CH-8001 Zurich Custodian bank State Street Bank GmbH, Munich Zurich Branch Beethovenstrasse 19, CH-8027 Zurich This English translation is only an unofficial translation of the German language text of the Fund Contract with Annex. According to 28 cipher 2 of this Fund Contract, only the German language version shall be binding for the interpretation of the Fund Contract. 1

2 FUND CONTRACT... 7 I. Basic Principles Fund Name; Name and Registered Office of Fund Management Company, Custodian Bank and Asset Manager... 7 II. Rights and Obligations of the Parties to the Contract The Fund Contract The Fund Management Company The Custodian Bank The Qualified Investors Units and Unit Classes III. Investment Policy Guidelines A: Investment Principles Compliance with Investment Regulations Investment Policy Liquid Assets B: Investment Techniques and Instruments Securities Lending Securities Repurchase Agreements Derivatives Raising and granting Loans Encumbrance of the Sub-fund s Assets C: Investment Restrictions Risk Diversification IV. Calculation of the Net Asset Value and Issue and Redemption of Units Calculation of the Net Asset Value Issue and Redemption of Units Contribution and Redemption in Kind and not in Cash

3 V. Fees and Incidental Costs Fees and Incidental Costs charged to the Investor Fees and Incidental Costs charged to the Sub-fund s Assets VI. Financial Statements and Audits Financial Statements Audits VII. Appropriation of Net Income Distributing and Accumulating Classes VIII. Official Publications of the Umbrella Fund and/or the Sub-funds Publication IX. Restructuring and Dissolution Mergers Duration of the Sub-funds and Dissolution X. Amendments to the Fund Contract, Change of Fund Management Company or Custodian Bank Amendments XI. Applicable Law and Place of Jurisdiction Applicable Law and Place of Jurisdiction XII. Special Section A - BIFS World ex Switzerland Equity Index Fund A Sub-fund A Unit Classes ( 6 Fund Contract) A Investment Objective and Investment Policy ( 8 Fund Contract) A Investment Restrictions and Investment Techniques A Accounting Currency ( 21 Fund Contract) A Notice Period A Issuing and Redemption Commission ( 19 Fund Contract) A Issue and Redemption Expenses ( 19 Fund Contract) A Flat-Rate Management Fee ( 20 Fund Contract)

4 38A Financial Statements ( 21 Fund Contract) A Distribution ( 23 Fund Contract) XIII. Special Section B BIFS World ex Switzerland Small Cap Equity Index Fund B Sub-funds B Unit Classes ( 6 Fund Contract) B Investment Objective and Investment Policy ( 8 Fund Contract) B Investment Restrictions and Investment Techniques B Accounting Currency ( 21 Fund Contract) B Notice Period B Issuing and Redemption Commission ( 19 Fund Contract) B Issue and Redemption Expenses ( 19 Fund Contract) B Flat-Rate Management Fee ( 20 Fund Contract) B Financial Statements ( 21 Fund Contract) B Distribution ( 23 Fund Contract) XIV. Special Section C BIFS Emerging Markets Equity Index Fund C Sub-fund C Unit Classes ( 6 Fund Contract) C Investment Objective and Investment Policy ( 8 Fund contract) C Investment Restrictions and Investment Techniques C Accounting Currency ( 21 Fund Contract) C Notice Period C Issuing and Redemption Commission ( 19 Fund Contract) C Issue and Redemption Expenses ( 19 Fund Contract) C Flat-Rate Management Fee ( 20 Fund Contract) C Financial Statements ( 21 Fund Contract) C Distribution ( 23 Fund Contract) ANNEX

5 I. Information on the Fund Management Company General Information on the Fund Management Company Delegation of Investment Decisions Delegation of Additional Functions II. Information on the Custodian Bank III. Paying Agent IV. Audit Company V. Additional Calculation of Net Assets VI. Information on Unit Classes VII. Overview of Sub-funds and/or Unit Classes VIII. Fees and incidental costs IX. Payment of Retrocessions and Rebates X. Fee-Sharing Agreements ( Commission Sharing Agreements ) and Non-Pecuniary Benefits ( Soft Commissions ) XI. Collateral strategy for financial derivative transactions, securities lending transactions and repurchase/reverse repurchase agreements XII. Conflicts of Interest General Relationships within the BlackRock Group and with the PNC Group XIII. Risk Warnings Specific investment risks applicable to all sub-funds Specific risks applicable to sub-funds concentrating on certain markets Risks associated with investing in equity funds Specific risks of using derivatives Other general risks XIV. Sales Restrictions XV. Official Publications of the Umbrella Fund and/or the Sub-funds XVI. Disclosures

6 XVII. Withholding Tax under Swiss Cooperation Agreement XVIII. Reclaims of Withholding Tax by the Funds / Investors XIX. FATCA and other cross-border reporting systems XX. SIS Settlement XXI. Definitions XXII. MSCI Indices ( MSCI Indices )

7 FUND CONTRACT This fund contract forms a basis for all subscriptions to the umbrella fund and/or its sub-funds. Only information that is included in the Fund Contract with Annex is valid. I. Basic Principles 1 Fund Name; Name and Registered Office of Fund Management Company, Custodian Bank and Asset Manager 1. A contractual umbrella fund of the type Other funds for traditional investments for qualified investors has been established under the name of BlackRock Institutional Funds Switzerland (the umbrella fund ) in accordance with Art. 25 et seq in conjunction with Art. 68 et seq in conjunction with Art. 92 et seq of the Swiss Federal Act on Collective Investment Schemes of 23 June 2006 ( CISA ). The umbrella fund is split into the following sub-funds: a) BIFS World ex Switzerland Equity Index Fund b) BIFS World ex Switzerland Small Cap Equity Index Fund c) BIFS Emerging Markets Equity Index Fund 2. The fund management company is BlackRock Asset Management Schweiz AG, Zurich. 3. The custodian bank is State Street Bank GmbH, Munich, Zurich Branch. 4. The asset manager is BlackRock Advisors (UK) Limited, 12 Throgmorton Avenue, London EC2N 2DL, England. 5. The umbrella fund and/or its sub-funds are exclusively available to qualified investors in accordance with Article 10 para. 3, 3bis, 3ter and 4 CISA in conjunction with Art. 6 and Art. 6a Collective Investment Schemes Ordinance ( CISO ). 6. Upon request of the fund management company and with the approval of the custodian bank, the Swiss Financial Market Supervisory Authority ( FINMA ) pursuant to Article 10 para. 5 CISA declares the following obligations as not applicable: The compulsory provision of share certificates, the obligation to designate a second publication medium, the obligation to publish changes of the fund management company and/or the custodian bank twice, the obligation to produce a prospectus, a key investor information document, the obligation to prepare a semi-annual report, and the obligation to issue and redeem units in cash. Instead of the prospectus, the fund management company makes additional information available to investors in the Annex to this fund contract, in particular relating to the delegation of investment decisions and other sub-tasks, the auditor and issued unit classes. II. Rights and Obligations of the Parties to the Contract 2 The Fund Contract 7

8 The legal relationship between investors 1, on the one hand, and the fund management company and the custodian bank on the other shall be governed by the present fund contract and the applicable provisions of the legislation on collective investment schemes. 3 The Fund Management Company 1. The fund management company manages the umbrella fund and its sub-funds at its own discretion and in its own name, but for the account of the investors. It decides in particular on the issue of units, the investments and their valuation. It calculates the net asset value and determines the issue and redemption prices of units as well as distributions of income. It exercises all rights associated with the umbrella fund and sub-funds. 2. The fund management company and its agents are subject to the duties of loyalty, due diligence and disclosure. They act independently and exclusively in the interests of the investors. They implement the organisational measures that are necessary for proper management. They ensure the provision of transparent financial statements and provide appropriate information on the umbrella fund and sub-funds. They disclose all fees and charges imposed directly or indirectly on investors as well as their appropriation; they inform investors about compensation for the distribution of collective investments in the form of commissions, brokerage fees and other monetary benefits in a complete, accurate and intelligible manner. 3. The fund management company may delegate the ability to make investment decisions as well as specific tasks for all sub-funds or for individual sub-funds, provided this is in the interests of proper management. It shall appoint only persons who are qualified to execute the task properly, and shall ensure the provision of instructions as well as monitoring and controlling in respect of the tasks. Investment decisions may be delegated only to asset managers who are subject to a recognised supervision. If foreign law requires an agreement on cooperation and exchange of information with foreign regulators, the fund management company may only delegate investment decisions to an asset manager abroad if such an agreement exists between FINMA and the relevant foreign supervisory authorities responsible for the concerned investment decisions. 4. Investment decisions may not be delegated to the custodian bank or to other companies whose interests may conflict with those of the fund management company or the investors. The fund management company is liable for the actions of its agents as if they were its own actions. 5. The fund management company may, subject to the consent of the custodian bank, submit an amendment to the present fund contract to the supervisory authority for approval (cf. 27), and may also create further sub-funds with the approval of the supervisory authority. 6. The fund management company may merge individual sub-funds with other sub-funds or with other investment funds pursuant to the provisions set down under 25 and can dissolve the individual sub-funds pursuant to the provisions set down under The fund management company may manage part or all of the assets of different BlackRock Institutional Funds Switzerland sub-funds jointly (pooling) as these are managed by the same fund management company and the assets are held in safe-keeping by the same custodian bank. This shall not give rise to any additional costs for the investors. The pooling shall not create any liability between the sub-funds involved. The fund management company shall at all times be in the position to allocate the investments of the pool to the individual sub-funds involved. The pool shall not constitute a separate 1 For the purpose of clarity and legibility, this document will avoid gender differentiation of investors (e.g. he/she). All relevant terms shall apply to both genders. 8

9 fund in its own right. 8. The fund management company is entitled to receive the fees stipulated in 19 and 20. It is further entitled to be released from the liabilities assumed in the proper execution of its tasks, and to be reimbursed for expenses incurred in connection with such liabilities. 4 The Custodian Bank 1. The custodian bank is responsible for the safe-keeping of assets of the sub-funds. It handles the issue and redemption of sub-fund units as well as payments on behalf of the sub-funds. 2. The custodian bank and its agents are subject to the duties of loyalty, due diligence and disclosure. They act independently and exclusively in the interests of the investors. They implement the organisational measures that are necessary for proper management. They ensure the provision of transparent financial statements and provide appropriate information on the umbrella fund and subfunds. They disclose all fees and charges imposed directly or indirectly on investors as well as their use; they inform investors about compensation for the distribution of collective investments in the form of commissions, brokerage fees and other monetary benefits in a complete, accurate and intelligible manner. 3. The custodian bank is responsible for the account management and custodial services of the umbrella fund and/or the sub-funds, but may not independently dispose of their assets. 4. The custodian bank shall ensure, for transactions relating to the assets of the umbrella fund and/or the sub-funds, that the proceeds are transferred within the usual time limits. It shall notify the fund management company if the proceeds are not reimbursed within the usual time limits, and shall demand compensation from the counterparty to the value of the affected asset, if possible. 5. The custodian bank manages the required records and accounts in such a way that the deposited assets of the umbrella fund and/or sub-fund can be distinguished from one another at all times. In the case of assets that cannot be taken in custody, the custodian bank verifies the ownership of the fund management company and keeps records thereof. 6. The custodian bank may delegate the safe-keeping of the assets of some or all sub-funds to third-party custodians and central securities depositaries in Switzerland or abroad, so long as this is in the interest of proper safe-keeping. It checks and monitors whether the mandated third party custodian or central securities depositary: a) has an appropriate business organization, financial guarantees and the professional qualifications required for the type and complexity of the assets that were entrusted to it; b) is subject to regular external audits in order to ensure that the financial instruments are in its possession; c) the assets received by the custodian bank are kept in custody in such a way that by means of regular portfolio comparisons they can at all times be clearly identified by the custodian bank as belonging to the assets of the relevant sub-fund; d) complies with the provisions applicable to the custodian bank relating to the exercise of its delegated tasks and the avoidance of conflicts of interest. The custodian bank is liable for the damage caused by its agents if it cannot prove that it applied the degree of due diligence with regard to the selection, instruction and monitoring required in the given circumstances. The Annex contains information on the risks associated with the transfer of safekeeping to third-party custodians and collective securities depositories. 9

10 Within the meaning of the preceding paragraph, financial instruments may only be transferred to regulated third-party custodians or central securities depositories, save for the mandatory safe-keeping in a place, where a transfer to regulated third-party custodians or central securities depositories is not possible, in particular due to mandatory law provisions or the particularities of the investment product. 7. The custodian bank ensures that the fund management company complies with the law and the fund contract. It checks whether the calculation of the net asset value and issue and redemption prices of the units as well as the investment decisions are in compliance with the law and the fund contract, and whether the income is appropriated in accordance with the fund contract. The custodian bank is not responsible for the choice of investments which the fund management company makes in accordance with the investment regulations. 8. The custodian bank is entitled to receive the fees stipulated in 19 and 20. It is further entitled to be released from the liabilities assumed in the proper execution of its tasks, and to be reimbursed for expenses incurred in connection with such liabilities. 9. The custodian bank is not responsible for the safe-keeping of the assets of the target funds in which the umbrella fund and/or the sub-funds invest, unless this task has been delegated to it. 5 The Qualified Investors 1. Within the meaning of 1 cipher 5 above, investors are eligible only if they are qualified investors in accordance with Art. 10 para. 3, 3bis, 3ter and 4 CISA in conjunction with Art. 6 CISO. The following, in particular, are considered to be qualified investors: regulated financial intermediaries such as banks, securities dealers, fund management companies and asset managers of collective investment schemes and central banks; regulated insurance institutions, public entities and retirement benefits institutions with a professional treasury, companies with professional treasury, and wealthy individuals in accordance with Art. 6 para. 1 CISO, who in accordance with Art. 6a CISO have declared in writing that they wish to be considered qualified investors, or investors who have concluded a written asset management agreement with a regulated financial intermediary in accordance with Art. 10 para. 3 lit. a CISA or with an independent asset manager who fulfils the requirements of Art. 3 para. 2 lit. c CISA, and have at the same time not declared in writing that they do not wish to be considered as qualified investors. 2. For individual sub-funds the Special Section or the Annex may limit an investment to those investors who meet certain criteria pursuant to 5 cipher 1 or other criteria, for example as regards their domicile, their tax or double-taxation treatment. The fund management company and the custodian bank shall ensure that the investors meet the conditions applying to the eligible investors. For such purpose and when examining the eligibility of investors, they may, in particular, rely on the written confirmation received from a regulated financial intermediary, provided the financial intermediary confirms therein, to the best of his knowledge and based on applied procedures and regular checks in order to ensure the qualification of investors booked with him, that the investors booked with him qualify for an investment in the umbrella-fund and/or individual sub-funds. Upon conclusion of the contract and payment made in cash, investors acquire a claim against the fund management company in respect of a participation in the assets and income of a subfund of the umbrella fund. Instead of such cash payment, upon request of the investor and with the approval of the fund management company a contribution in kind can be made pursuant to 18. The investor s claim is evidenced in the form of sub-fund units. 3. The investors are only required to remit payment for their subscribed units of the sub-fund. Payments are normally made in cash. In accordance with 18 upon request of the investor, the fund management company has the right, without legal obligation, to accept a contribution of assets instead of a cash payment. A personal liability of the investor for the liabilities of the umbrella fund and/or the 10

11 individual sub-funds is excluded. 4. Investors are only entitled to participate in the assets and income of that sub-fund in which they hold units. Liabilities that are attributable to an individual sub-fund will be borne solely by the said subfund. 5. Investors may at any time request that the fund management company supply them with the necessary information regarding the basis on which the net asset value per unit is calculated. If investors express an interest in more detailed information on specific business transactions effected by the fund management company, such as the exercising of membership and creditors' rights, risk management or contributions/redemptions in kind, they must be given such information by the fund management company at any time. The investors may request at the court of the registered office of the fund management company that the auditors or another expert investigate the matter which requires clarification and furnish the investors with a report. 6. Investors may terminate the fund contract at any time, subject to the notice periods in accordance with 17 cipher 1, and may request the payment of their share in the relevant sub-fund in cash. Instead of cash redemption, a redemption in kind can be made in accordance with 18 upon request of the investor and with the approval of the fund management company. 7. Upon request, the investors are required to demonstrate to the fund management company, the custodian bank and their agents with proof that they meet or continue to meet the requirements stipulated by law or the fund contract in respect of a participation in a sub-fund or unit class. Furthermore, they are required to inform the fund management company, the custodian bank and their agents immediately once they no longer meet these prerequisites. 8. The units of an investor must be redeemed compulsory by the fund management company in conjunction with the custodian bank at the current redemption price if: a) this is necessary to safeguard the reputation of the financial market, specifically to combat money laundering; b) the investor no longer meets the statutory or contractual requirements for participation in this umbrella fund and/or its sub-funds or unit classes. 9. In addition, the fund management company in conjunction with the custodian bank may compulsory redeem the units of an investor at the current redemption price if: a) the participation of the investor in the umbrella fund and/or its sub-funds is such that it could have a significant detrimental impact on the economic interests of the other investors, in particular if the participation could result in tax disadvantages for the umbrella fund and/or its sub-funds in Switzerland or abroad; b) the investors have acquired or hold their units in violation of provisions of a law applicable to them either in Switzerland or abroad, or in violation of provisions of the present fund contract; c) there is a detrimental impact on the economic interests of the investors, in particular in cases where individual investors seek by way of systematic subscriptions and immediate redemptions to achieve a pecuniary gain by exploiting the time differences between the setting of the closing prices and the valuation of the assets of the umbrella fund and/or its sub-funds (market timing). 6 Units and Unit Classes 1. The fund management company can create different unit classes and can also merge or dissolve unit classes for each sub-fund at any time, subject to the consent of the custodian bank and the approval of the supervisory authority. All unit classes entitle to the participation in the undivided assets of the relevant sub-fund, which itself is not segmented. This participation may differ due to class-specific costs or distributions or class-specific income and 11

12 the various unit classes of a sub-fund may therefore have different net asset values per unit. Class-specific costs are covered by the assets of the sub-fund as a whole. 2. Notification of the creation, dissolution or merger of unit classes shall be published in the publication medium. Only a merger shall be deemed an amendment to the fund contract pursuant to The various unit classes of the sub-funds may differ from one another in terms of their cost structure, reference currency, currency hedging, distribution or accumulation of income, the minimum investment required as well as investor eligibility. Fees and costs are only charged to the unit class for which the respective service is performed. Fees and costs that cannot be clearly assigned to a unit class shall be charged to the individual unit classes on a pro rata basis in relation to the sub-fund s assets. 4. The currently existing unit classes are shown in the Special Section. If multiple unit classes exist, the different unit classes shall be reflected in each name. 5. The units shall not take the form of actual certificates but shall exist exclusively as book entry units in the name of the investor. The investor does not have the right to request delivery of a share certificate issued in its name or in bearer form. In general, the units must be kept in the accounts by the custodian bank via a deposit account or by SIX SIS Ltd as an external custodian (deliverability). Fractional parts of units are issued to the third decimal place. 6. The fund management company is obliged to request investors who no longer meet the conditions for holding a unit class to redeem their units within 30 calendar days pursuant to 17, to transfer to a person who does meet the aforementioned conditions, or to switch into units of another unit class whose conditions will be met. If an investor fails to comply with such request, the fund management company may, in cooperation with the custodian bank, effect a compulsory conversion into another unit class of the relevant sub-fund, or, should this not be possible, effect a compulsory redemption of the relevant units in cooperation with the custodian bank (see 5 cipher 9 above). III. Investment Policy Guidelines A: Investment Principles 7 Compliance with Investment Regulations 1. When selecting the individual investments of each sub-fund, the fund management company must observe the percentage limits defined below in order to achieve a balanced risk diversification. These limits relate to the assets of the individual sub-funds at market value and must be complied with at all times. Newly created sub-funds must comply with the investment restrictions within six months after the expiry of the subscription period (launch). 2. If the limits are breached as a result of market-related changes or changes in the relevant subfund s assets, the investments must be restored to the permitted level within a reasonable period of time, taking due account of the investors' interests. If the limits relating to derivatives pursuant to 12 below are breached due to a change in delta, the permitted levels must be restored within three bank working days taking due account of the investors' interests. 12

13 8 Investment Policy 1. The investment policy for each sub-fund is laid out in the Special Section of this fund contract. 2. Within the framework of the specific investment policy of each sub-fund pursuant to the Special Section, the fund management company may invest the assets of the individual sub-funds in the following instruments: a) Securities and rights (Effekten), meaning securities issued on a large scale and uncertificated rights having the same function (uncertificated securities) that are traded on a stock exchange or other regulated market open to the public, and which represent a participation right or claim or the right to acquire such securities and uncertificated securities by way of subscription or exchange, for example warrants; Investments in securities from new issues are only permitted if their admission to a stock exchange or other regulated market open to the public is provided for under the terms of issue. If they have not been admitted to a stock exchange or other regulated market open to the public within a year after their acquisition, these securities must be sold within one month or included under the limit set down in 8 cipher 2 lit. i. b) Derivatives, if (i) the underlying instruments are securities pursuant to lit. a, derivatives pursuant to lit. b, units of collective investment schemes pursuant to lit. d, units of other funds for alternative investments pursuant to lit. e, units of domestic and foreign real estate funds pursuant to lit. f, money market instruments pursuant to lit. g, financial indices, interest rates, exchange rates, credits or currencies, and (ii) the underlying instruments are permitted as investments under the fund contract. Derivatives are either traded on a stock exchange or other regulated market open to the public, or are traded OTC; Investments in OTC traded derivatives (OTC transactions) are permitted only if (i) the counterparty is a regulated financial intermediary specialising in such transactions, and (ii) the OTC derivatives can be traded daily or a return to the issuer is possible at any time. In addition, it shall be possible for them to be valued in a reliable and transparent manner. Derivatives may be used pursuant to 12. c) Structured products, if (i) the underlying instruments are securities pursuant to lit. a, derivatives pursuant to lit. b, units of collective investment schemes pursuant to lit. d, money market instruments pursuant to lit. g, financial indices, interest rates, exchange rates, credits or currencies, and (ii) the underlying instruments are permitted as investments under the fund contract. Structured products are either traded on a stock exchange or other regulated market open to the public, or are traded OTC; Investments in OTC traded structured products (OTC transactions) are permitted only if (i) the counterparty is a regulated financial intermediary specialising in such transactions, and (ii) the OTC products can be traded daily or a return to the issuer is possible at any time. In addition, it shall be possible for them to be valued in a reliable and transparent manner. d) Units and/or shares of open-ended domestic and foreign collective investment schemes including "Exchange Traded Funds" ( ETF ) or undertakings for collective investment ( Target Funds ), provided these Target Funds are subject to provisions equivalent to those pertaining to other funds for traditional investments in respect of their purpose, organisation, investment policy, investor protection, risk diversification, segregated safe-keeping of the fund assets, borrowing, lending, short-selling of securities and money market instruments, issue and redemption of units and the content of the semiannual and annual reports; and these Target Funds are approved as collective investment schemes and/ or investment organisations (Anlageorganismen) in their country of domicile and are subject to a local supervision which is equivalent to that in Switzerland and dedicated to protect investors, and that international legal assistance is ensured. Units and/or shares of closed-ended collective investment schemes or undertakings for collective investment with similar function ( Target Funds ), provided these Target Funds are 13

14 subject to provisions equivalent to those pertaining to other funds for traditional investments in respect of their purpose, organisation, investment policy, investor protection, risk diversification, segregated safe-keeping of the fund assets, borrowing, lending, short-selling of securities and money market instruments, issue and redemption of units and the content of the semi-annual and annual reports; and these Target Funds are approved as collective investment schemes and/ or investment organisations (Anlageorganismen) in their country of domicile and are subject to a local supervision which is equivalent to that in Switzerland and dedicated to protect investors, and that international legal assistance is ensured. The Target Funds are subject to their own investment restrictions which are set out in their own fund documentation. Investments which are made in Target Funds must generally be invested in Target Funds which, in their fund documentation, have set out a redemption and/or trading frequency which corresponds with the redemption and/or trading frequency of this umbrella fund. The legal form of the Target Fund is irrelevant which may be collective investment schemes on a contractual basis, collective investment schemes having a corporate form, unit trusts or limited partnerships. e) Units of other funds for alternative investments. The following are permitted: Units of collective investment schemes under Swiss law which invest in alternative investments (generally known as hedge funds); Units of foreign undertakings for collective investment (UCI), which correspond to Other funds for alternative investments under Swiss law (subject to equivalent supervision). The fund management company may invest up to 10% of the assets of each subfund in units of other funds for alternative investments. Funds of funds under Swiss or foreign law, which invest in units of alternative investments, pursuant to sub-section 2 lit. e) (generally known as a fund of hedge funds). The relevant limit in % of the assets of a sub-fund, for which the Special Section provides for the possibility of investing in these fund of funds, is also set out in the relevant Special Section. f) Units of open-ended domestic and foreign real estate funds or other open-ended undertakings for collective investment with similar function, whose units are periodically redeemed or repurchased on the basis of their net asset value. Units in closed-ended domestic or foreign real estate funds or other closed-ended undertakings for collective investment with similar function which are traded on a stock exchange or other regulated market open to the public. Foreign real estate funds may be set up according to the law of any country in which they are subject to supervision equivalent to that in Switzerland and international legal assistance is ensured. g) Money market instruments, provided these are liquid, can be readily valued and are traded on a stock exchange or other regulated market open to the public; money market instruments which are not traded on a stock exchange or other regulated market open to the public may be acquired only if the issue or the issuer is subject to provisions regarding creditor or investor protection and if the money market instruments are issued or guaranteed by issuers pursuant to Art. 74 para. 2 CISO. h) Sight and term deposits with terms to maturity not exceeding twelve months with banks having their seat in Switzerland or in a member state of the European Union or in another country, provided that the bank is subject to supervision in this country which is equivalent to the supervision in Switzerland. i) Investments other than those specified in a) to h) above up to a total of 10% of the assets of an individual sub-fund. The following are not permitted: (i) investments in metals (with the exception of precious metals), metal certificates (with the exception of precious metal certificates), commodities and commodity certificates (also excluded are physical deliveries of any kind) as well as (ii) true short-selling of investments pursuant to a) to h) above. 14

15 3. The fund management company may, subject to 20, acquire units of other collective investment schemes which are managed directly or indirectly by the fund management company itself or by an entity affiliated to the fund management company by common management or control or by a direct or indirect material participation in the capital or voting rights of this entity. 4. With regard to indirect investments via derivatives, it should be noted that an accumulation of risk exposures may occur when investing in such instruments, as in addition to the market risk of the underlying investment, the investor is exposed to the counterparty risk of the issuer of the derivative instrument. This risk accumulation can be of particular importance in the case of the systematic use of derivatives on market indices instead of a broadly diversified portfolio of direct investments. 9 Liquid Assets The fund management company may also hold liquid assets for each sub-fund in an appropriate amount in the accounting currency of the sub-fund concerned, in any other currency in which investments for the sub-fund concerned are permitted, and as a minimum in USD, CHF, EUR, and GBP. Liquid assets comprise bank deposits as well as claims from repurchase agreements at sight or on demand with maturities of up to twelve months. B: Investment Techniques and Instruments 10 Securities Lending 1. For the account of the sub-funds, the fund management company may lend all types of securities which are traded on an exchange or other regulated market open to the public. However, it may not lend securities that have been acquired under a reverse repo transaction. 2. The fund management company may lend securities in its name and for the account of the subfunds to a borrower (as principal) or appoint an intermediary (as agent) to make the securities at the disposal of the borrower. The fund management company appoints the asset manager, BlackRock Advisors (UK) Limited, as the securities lending agent (the Lending Agent ). 3. The fund management company, or the Lending Agent on its behalf, shall only carry out securities lending transactions with first-class, regulated borrowers and intermediaries which are specialized in transactions of this type, such as banks, brokers and insurance companies, as well as authorized and recognized central counterparties and central securities depositories that guarantee the proper execution of the security lending transactions. 4. If the fund management company, or the Lending Agent on its behalf, must observe a notice period, which may not be more than 7 bank working days, before it can legally dispose of the loaned securities again, it may not lend more than 50% of the eligible holding of a particular security per sub-fund. However, if the borrower or the intermediary provides the fund management company, or the Lending Agent on its behalf, with a contractual assurance that the latter may legally dispose of the securities lent on the same or next bank working day, the entire holdings of a particular instrument type eligible for lending may be lent. There is always such a contractual commitment for securities lending performed by the Lending Agent. 5. The fund management company, or the Lending Agent on its behalf, shall conclude an agreement with the borrower or intermediary whereby the latter shall pledge or transfer collateral pursuant to Art. 51 CISO-FINMA to the fund management company, or the Lending Agent on its behalf, for the purposes of guaranteeing restitution. The value of the collateral must be appropriate and at all times be at least equal to the market value of the loaned 15

16 securities. The issuer of the collateral must have a high credit rating and the collateral shall not be issued by the counterparty or a company belonging to or depending of the group of companies of the counterparty. The collateral must be highly liquid, traded at a transparent price on an exchange or other regulated market open to the public and valued at least on every exchange trading day. When managing the collateral, the fund management company and/or its agents must comply with the obligations and requirements pursuant to Art. 52 CISO-FINMA. In particular, they must adequately diversify the collateral in respect of countries, markets and issuers, whereby an appropriate diversification of issuers shall be assumed, if the collateral issued by any single issuer does not account for more than 20% of net asset value of a subfund, subject to exemptions for publicly guaranteed or issued investments pursuant to Art. 83 CISO. Further, in the event of default by the counterparty, the fund management company and/or its agents must be able to obtain at any time the power of disposal and the right for disposal over the collateral received without involving the counterparty or obtaining its consent. The collateral received shall be kept safe with the custodian bank. The collateral received may be held on behalf of the fund management company with a regulated third party depository provided the ownership on the collateral is not transferred and the third party depository is independent of the counterparty. 6. The borrower or intermediary is liable for ensuring the prompt, unconditional payment of any income accruing during the lending period, as well as for the assertion of other proprietary rights and for the contractually agreed return of securities of the same type, quantity and quality. 7. The custodian bank shall ensure that the securities lending transactions are handled in a secure manner in line with the agreements and in particular shall monitor compliance with the requirements relating to collateral. Throughout the duration of the lending transactions it shall also be responsible for the administrative duties assigned to it under the custody account regulations and for asserting all rights associated with the loaned securities, provided these have not been ceded under the terms of an applicable framework agreement. 8. Under the terms of the written agreement between the fund management company and the Lending Agent, the Lending Agent is appointed to manage the securities lending activities of the relevant sub-funds and is entitled to share in the revenue earned from such activities. The income earned from securities lending will be allocated between the relevant sub-funds and the Lending Agent at normal commercial rates. The Lending Agent s agreed revenue share is currently 37.5% of the total income generated from securities lending. The Lending Agent must meet all costs and expenses associated with securities lending out of this share. The remaining income, 62.5%, will be paid to the relevant sub-funds and used in accordance with the relevant investment policy. This revenue share may change, subject to the fund management company being satisfied that any new terms reflect normal commercial rates. Financial information with respect to securities lending for the sub-funds will be included in the annual reports and audited financial statements. The fund management company will, at least annually, review the securities lending arrangements and associated costs. 9. The Annex contains additional information on the collateral strategy. 11 Securities Repurchase Agreements 1. For the account of the sub-funds, the fund management company may enter into repurchase agreements. Repurchase agreements can be concluded as either repos or reverse repos. A repo is a legally binding transaction whereby one party (the borrower or repo seller) undertakes to temporarily transfer ownership of specific securities to another party (the lender or repo buyer) against remuneration, while the lender undertakes to return to the borrower securities of the same type, quantity and quality at the end of the repo term together with any income earned during such term. The price risk associated with the securities shall be borne by the borrower for the duration of the repo transaction. From the perspective of the counterparty (lender or repo buyer), a repo is a reverse repo. By means of a reverse repo, the fund management company acquires securities for investment 16

17 purposes and at the same time agrees to return securities of the same type, quantity and quality and to transfer all income received during the term of the reverse repurchase agreement. 2. The fund management company may conclude repurchase agreements in its own name and for the account of the sub-funds ("principal transaction"), or may appoint an intermediary to conclude repurchase agreements with a counterparty either indirectly on a fiduciary basis ("agent transaction") or directly ("finder transaction ). 3. The fund management company shall only carry out repurchase transactions with first-class, regulated counterparties and intermediaries which are specialized in transactions of this type, such as banks, brokers and insurance companies, as well as authorized and recognized central counterparties and central securities depositories that guarantee the proper execution of the repurchase transactions. 4. The custodian bank shall ensure that the repurchase agreements are conducted in a secure manner and that the contractual terms are complied with. It shall ensure that fluctuations in the value of the securities used in the repo transactions are daily compensated in cash or securities (mark to market). Throughout the duration of the repurchase agreement, it is also responsible for the administrative duties assigned to it under the custody account regulations and for asserting all rights pertaining to the securities used in the repo transactions, provided these have not been ceded under the terms of an applicable framework agreement. 5. For repo transactions, the fund management company may use all types of securities which are traded on a stock exchange or other regulated market open to the public. It may not use securities acquired under a reverse repo for repo transactions. 6. If the fund management company must observe a notice period, which may not be more than 7 bank working days, before it can legally dispose of the securities used in a repo transaction again, it may not lend more than 50% of the particular type of security eligible for repo transactions per sub-fund. However, if the counterparty and/or the intermediary provides the fund management company with a contractual assurance that the latter may legally dispose over the securities used in the repo transaction on the same or next bank working day, the entire holdings of a particular type of security eligible for repo transactions may be used. 7. Concluding repo transactions is deemed to be borrowing pursuant to 13, unless the money received is used to acquire securities of the same type, quality, creditworthiness and maturity in conjunction with the conclusion of a reverse repo. 8. With regard to reverse repos, the fund management company may only acquire collateral pursuant to Art. 51 CISO-FINMA. The issuer of the collateral must have a high credit rating and the collateral shall not be issued by the counterparty or a company belonging to or depending on the group of companies of the counterparty. The collateral must be highly liquid, traded at a transparent price on an exchange or other regulated market open to the public and valued at least on every exchange trading day. When managing the collateral, the fund management company and/or its agents must comply with the obligations and requirements pursuant to Art. 52 CISO-FINMA. In particular, they must adequately diversify the collateral in respect of countries, markets and issuers, whereby an appropriate diversification of issuers shall be assumed, if the collateral issued by any single issuer does not account for more than 20% of net asset value of a sub-fund, subject to exemptions for publicly guaranteed or issued investments pursuant to Art. 83 CISO. Further, in the event of default by the counterparty, the fund management company and/or its agents must be able to obtain at any time the power of disposal and the right for disposal over the collateral received without involving the counterparty or obtaining its consent. The collateral received shall be kept safe with the custodian bank. The collateral received may be held on behalf of the fund management company with a regulated third party depository provided the ownership on the collateral is not 17

18 transferred and the third party depository is independent of the counterparty. 9. Claims arising from reverse repos are deemed to be liquid assets pursuant to 9 and not lending (Kreditgewährung) pursuant to The Annex contains additional information on the collateral strategy. 12 Derivatives 1. The fund management company may use derivatives. It shall ensure that, even under extreme market circumstances, the financial effect of the use of derivatives does not result in a deviation from the investment objectives set out in the fund contract or that it does not change the investment character of the sub-funds. Furthermore, the underlying asset of the derivatives must be permitted as investments according to the present fund contract. In connection with collective investment schemes, derivatives may only be used for currency hedging purposes. The option of hedging market, interest-rate and credit risks in collective investment schemes is reserved provided the risks are clearly identifiable and measurable. 2. Commitment Approach I shall be applied for the assessment of risk. The use of derivatives where account is taken of the necessary coverage set out in this paragraph does not result in a leverage effect on the sub-funds assets, nor does it correspond to short selling. 3. Only basic types of derivatives may be used. These comprise: a) Call or put options whose value at expiration is linearly dependent on the positive or negative difference between the market value of the underlying and the strike price and is zero if the difference is preceded by the opposite algebraic sign; b) Credit Default Swaps (CDS) c) Swaps whose payments are dependent on the value of the underlying or on an absolute amount in both a linear and a path-independent manner; d) Future and forward transactions whose value is linearly dependent on the value of the underlying. 4. The financial effect of the use of derivatives is similar to either a sale (exposure-reducing derivative) or a purchase (exposure-increasing derivative) of an underlying. 5. a) In the case of exposure-reducing derivatives, the arising obligations subject to sections b) and d) must be covered at all times by the underlyings of the derivative. b) Cover with investments other than the underlyings shall be permitted in the case of exposurereducing derivatives that relate to an index which is: (i) calculated by an independent external office; (ii) representative of the investments serving as cover; (iii) sufficiently well correlated with these investments. c) The fund management company must have unrestricted power to dispose of these underlyings or investments at all times. d) An exposure-reducing derivative can be weighted by the delta in the calculation of the corresponding underlying securities. 6. In the case of exposure increasing derivatives, the equivalent underlying asset of a derivative position must at all times be covered by near-money assets in accordance with Art. 34 para. 5 CISO-FINMA. In the case of futures, options, swaps and forwards the equivalent underlying 18

19 asset is determined in accordance to Appendix 1 of CISO-FINMA. 7. The fund management company must take account of the following rules when netting derivative positions: a) Counter positions in derivatives based on the same underlying as well as counter positions in derivatives and in investments in the same underlying may be netted, irrespective of the maturity date of the derivatives ("netting"), provided the derivative transaction was concluded with the sole purpose of eliminating the risks associated with the derivatives or investments acquired, the key risks are not neglected and the conversion amount (Anrechnungsbetrag) of the derivatives is determined pursuant to Art. 35 CISO-FINMA. b) If the derivatives in hedging transactions do not relate to the same underlying as the asset that is to be hedged, in addition to the rules under let. a) above, the following conditions must be met for netting ( Hedging ): The derivative transactions may not be based on an investment strategy that serves to generate a profit. In addition, the derivative must lead to a demonstrable reduction in the risk. The risks of the derivative must be balanced. The derivatives, underlyings or assets that are to be netted must relate to the same class of financial instruments and the hedging strategy must be effective even under exceptional market conditions. c) Derivatives, which are used for pure hedging of foreign currency risks and which do not result in a leverage effect, or include additional market risks, can be netted without the requirements as specified under let. b) above for the calculation of total exposure from derivatives. d) Covered hedging transactions through interest rate derivatives are permitted. Convertible bonds can be ignored when calculating the exposure arising from derivatives. 8. The fund management company may use both standardised and non-standardised derivatives. It may conclude transactions in derivative financial instruments on an exchange or another regulated market open to the public or in OTC (over-the-counter) trading. 9. a) The fund management company may conclude OTC transactions only with regulated financial intermediaries specialised in such types of transactions that ensure proper execution of the contract. If the counterparty is not the custodian bank, the former or its guarantor must meet a high credit rating. b) It must be possible to reliably and verifiably value an OTC derivative on a daily basis and to sell, liquidate or close out the derivative at market value at any time. c) If no market price is available for an OTC- derivative, it must be possible to determine the price at any time by using an appropriate and recognized in practice valuation model, based on the market value of the underlyings from which the derivative was derived. Prior to the conclusion of such derivative contract, specific offers must generally be obtained from at least two potential counterparties, whereby the contract is to be concluded with the counterparty providing the most favourable offer in terms of price. Deviations from this principle are possible for reasons relating to risk diversification, or where other parts of the contract such as credit rating or the range of services offered by the counterparty deem another offer more advantageous overall for the investors. Moreover, provided this is in the best interest of investors, obtaining offers from at least two potential counterparties may exceptionally be omitted. The reasons for this as well as the conclusion of the transaction and pricing shall be documented in a transparent manner. d) The fund management company and/or its agents may in connection with OTC-transactions only accept collateral that meets the requirements set out in Art. 51 CISO-FINMA regarding collateral. The issuer of the collateral must have a high credit rating and the collateral shall not be issued by the counterparty or a company belonging to or depending of the group of companies of the counterparty. The collateral must be highly liquid, traded at a transparent price on an exchange or other regulated market open to the public and valued at least on every exchange trading day. When managing the collateral, the fund management company and/or its agents must comply with the obligations and requirements pursuant to Art. 52 CISO-FINMA. In particular, they must adequately diversify the collateral in respect of countries, markets and 19

20 issuers, whereby an appropriate diversification of issuers shall be assumed, if the collateral issued by any single issuer does not account for more than 20% of net asset value of a subfund, subject to exemptions for publicly guaranteed or issued investments pursuant to Art. 83 CISO. Further, in the event of default by the counterparty, the fund management company and/or its agents must be able to obtain at any time the power of disposal and the right for disposal over the collateral received without involving the counterparty or obtaining its consent. The collateral received shall be kept safe with the custodian bank. The collateral received may be held on behalf of the fund management company with a regulated third party depository provided the ownership on the collateral is not transferred and the third party depository is independent of the counterparty. 10. In respect of compliance with the statutory and contractual investment restrictions (maximum and minimum limits), derivatives shall be taken into account in accordance with the legislation on collective investment schemes. 11. The Annex to this fund contract contains information concerning risks associated with the use of derivatives as well as the collateral strategy. 13 Raising and granting Loans 1. The fund management company may not grant loans for the sub-funds account. Securities lending transactions pursuant to 10 and repurchase agreements taking the form of reverse repos pursuant to 11 are not deemed to be loans within the meaning of this clause. 2. The fund management company may borrow for each sub-fund the equivalent of up to 10% of the net assets of the relevant sub-fund on a temporary basis. These loans may not be used for investment purposes. Repurchase agreements as repos pursuant to 11 are deemed to be borrowing within the meaning of this clause unless the funds obtained are used as part of an arbitrage transaction for the acquisition of securities of the same type, quality, creditworthiness and maturity in connection with a reverse repo. 14 Encumbrance of the Sub-fund s Assets 1. No more than 25% of the net assets of each sub-fund may be pledged or ownership thereof transferred as collateral by the fund management company at the expense of the sub-fund concerned. 2. The net assets of the relevant sub-fund may not be encumbered with guarantees. An exposureincreasing credit derivative is not deemed to be a guarantee within the meaning of this paragraph. C: Investment Restrictions 15 Risk Diversification 1. The regulations on risk diversification shall include the following: a) investments pursuant to 8, with the exception of index-based derivatives, provided the index is sufficiently diversified, it is representative of the market it relates to and is published in an appropriate manner; b) liquid assets pursuant to 9; 20